Bubble Meter is a national housing bubble blog dedicated to tracking the continuing decline of the housing bubble throughout the USA. It is a long and slow decline. Housing prices were simply unsustainable. National housing bubble coverage. Please join in the discussion.

Tuesday, June 26, 2007

Prices Falling In Many Metro Areas

According to Standard and Poor's Case-Schiller home price index, home prices in 10 metropolitan areas declined at the fastest rate in 16 years. The figures reflect home prices during a 12-month period ending in April. "

The report said that home values fell 2.7 percent in April from the same period in the previous year. It is the fourth consecutive decline in the index, since 2001.

Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. said in a Bloomberg news report, "There's no end in sight to price declines in housing until supply and demand get back in line and inventories come down." Adding, "We don't expect the correction to end any time soon.''

The report indicated that price appreciation has been decreasing for 17 straight months, while home prices have doubled since 2000, across the U.S. "No region is immune to weakening price returns," said Robert Shiller, chief economist for MacroMarkets LLC and the co-creator of the index, CBS MarketWatch reports.

Fourteen of twenty metropolitan areas sampled revealed dropping prices in the last year. That list is lead by Detroit, which is 9.3 percent lower, San Diego, lower by 6.7 percent, and Washington, down by 5.7 percent. (All Headline News 6/26/07 )

58 comments:

Well, this is all to be expected. What I found interesting is Paper Money's point that we are only 10 months into the decline and the last decline lasted 54 months. How long will this go on? Looks like my plan to buy in 2010 (when we'll have 6 figures saved up for a hefty down payment) will be fine. In the meantime, we rent. And for all those comments that are sure to come from Lance and his ilk, we have a lease (which is a legal contract--my husband and I are both attorneys). I can assure you that anyone with a lease to rent a place does not have their landlord do what they please. Our landlord does not have the right to come into the home unless she asks our permission first. Also, should she decide to terminate our lease, she needs to give us 60 days notice on the first of the month. I love my rental. It has refinished wood floors and new carpet. I will be more than happy to stay there for 4 years.

Worries about the economy could be discouraging people from living on their own. Household formation, measured by the increase in housing units occupied by owners or renters, took a huge drop in the first quarter. If the pace holds, it could mean trouble for a housing market already facing high inventories and falling prices.

Households had been forming at a pace of about a million a year, but that has dropped more than half in the first quarter. At the end of the period the total number of households stood at 109.7 million, an increase of just 415,000 from a year earlier, according to the Census Bureau.

The pace of formation typically declines during economic slowdowns. So the latest drop is surprising amid a strong job market, rising wages, record household wealth and a stock market near record levels, said Lawrence Yun, senior economist at the National Association of Realtors. “Given this positive economic backdrop, for household formation to weaken this much is implying that people have the financial capacity but they don’t have the confidence to move on their own,” he said in an interview. Instead, they may be finding roommates or moving in with their parents.

The numbers should make homebuilders especially nervous. Housing starts in May were at a pace of 1.5 million a year. Construction normally should be at a pace that accounts for household formation plus replacement of about 300,000 units that are demolished, Mr. Yun said. That means housing starts are almost double what they should be, and that doesn’t even take into account weakness across the rest of the housing sector.

Unless household formation picks up this quarter, the housing supply could become even more bloated. Today’s report on new-home sales and the S&P/Case-Shiller Home Price Indices showed price drops as inventories rise. –Sudeep Reddy

Several month's ago, Lance assured me that there was and endless supply of trust fund naer-do-wells and fiscally responsible twentysomethings that would maintain the housing deamand in the face of investors fleeing the market and tightening lending standards (still waiting for the hard data on that, buy the way, Lance).

Well, it seems the naer-do-wells are getting roomies and the fiscally responsible twentysomethings are moving in with their folks.

Now where are the buyers going to come from? Hurry, inventory is increasing by the day.

The United States faces a severe credit crunch as mounting losses on risky forms of debt catch up with the banks and force them to curb lending and call in existing loans, according to a report by Lombard Street Research.

The group said the fast-moving crisis at two Bear Stearns hedge funds had exposed the underlying rot in the US sub-prime mortgage market, and the vast nexus of collateralised debt obligations known as CDOs.

"Excess liquidity in the global system will be slashed," it said.

"Banks' capital is about to be decimated, which will require calling in a swathe of loans.

This is going to aggravate the US hard landing."

Charles Dumas, the group's global strategist, said the failed auction of assets seized from one of the Bear Stearns funds by Merrill Lynch had revealed the dark secret of the CDO debt market. The sale had to be called off after buyers took just $200m of the $850m mix.

"The banks were not prepared to bid over 85pc of face value for CDOs rated "A" or better," he said.

"God knows how low the price would have dropped if they had kept on going. We hear buyers were lobbing bids at just 30pc.

"We don't know what the value of this debt is because the investment banks shut down the market in a cover-up so that nobody would know. There is $750bn of dubious paper out there in the form of CDOs held by banks that have a total capitalisation of $850bn."

US property writer Paul Muolo described the Bearn Stearns crisis as the “subprime Chernobyl”, saying the bank had created a “cone of silence”.

Abandoned by fellow banks, Bear Stearns has now put up $3.2bn of its own money to rescue one of the funds, a quarter of its capital.

This is the biggest bail-out since the Long-Term Capital Management crisis in 1998, which Bear Stearns refused to join at the time. Bear Stearns is now alone, a case of rough justice being served.

Lombard Street’s warning comes as fresh data from the US National Association of Realtors shows that the glut of unsold homes reached a record of 8.9 months supply in May. Sales of existing homes slid to an annual rate of 5.99m.

The median price fell for the 10th month in a row to $223,700, down almost 14pc from its peak in April 2006.

This is the steepest drop since the 1930s.

The Mortgage Lender Implode-Meter that tracks the US housing markets claims that 86 major lenders have gone bankrupt or shut their doors since the crash began.

The latest are Aegis Lending, Oak Street Mortgage and The Mortgage Warehouse.

“There isn’t a recovery about to happen,” said Ara Hovanian, head of the building group Hovanian Enterprise.

Nouriel Roubini, economics professor at New York University, said there were now concerns about “systemic risk fall-out” from the Bear Stearns debacle as investors look more closely at the real value of CDOs.

“These highly illiquid securities have been priced so far on unrealistic and distorted credit ratings as the ratings industry has been complicit,” he said.

“They have not been rerated in a way that is consistent with rising subprime default rates. “That is why Wall Street is in a panic. “Losses will be massive once these assets are correctly priced to market.”

Lombard Street said the Bear Stearns fiasco was the tip of the iceberg. The greatest risk lies in the “toxic tranches” of lower grade securities held by the banks.

Much-trumpeted claims that banks had shifted off the riskiest credit exposure on to the asset markets was

“largely a fiction”, said Mr Dumas.

The worst of the US property crisis has yet to hit since there is an overhang of $2,000bn ($2 TRILLION)of mortgages with adjustable rates which have yet to be reset. Many borrowers could see payments jump by half, or even double.

At the same time, a spike in 10-year US bond yields by 0.65 percentage points over the last six weeks has drastically repriced the cost of fixed mortgages, knocking away a key prop for the US housing market.

“With defaults at their highest in the 37 years that records have been kept, it could be a long hot summer,” said Mr Dumas.

Key quotes here:

“There isn’t a recovery about to happen,” said Ara Hovanian, head of the building group Hovanian Enterprise.

and

The worst of the US property crisis has yet to hit since there is an overhang of $2,000bn ($2 TRILLION)of mortgages with adjustable rates which have yet to be reset. Many borrowers could see payments jump by half, or even double.

Neil my friend, I think you and I should buy up stock in the company that makes jiffy pop, because there is gonna be a whole lotta popcorn eating going on for a looooooong time to come.

NEW YORK, June 26 (Reuters) - Delinquency rates are rising for so-called "Alt-A" home mortgages held by U.S. borrowers who are rated above the subprime category but below the more pristine prime borrower, said Standard & Poor's in a report on Tuesday.

"Although the vast majority of Alt-A borrowers are making regular payments on their mortgage loans, there are strong--and growing--indications of deteriorating performance in the 2006 vintage," S&P said.

The rating agency said the percentage of Alt-A loans that are 90 or more days delinquent in 2006 is 2.5 times higher than the previous year's figure and more than 4 times that of 2004.

Many Alt-A borrowers used the mortgages to refinance second homes or investment properties, but with U.S. home prices stagnating, and lending criteria being tightened, it will be harder for Alt-A borrowers to sell or refinance their mortgages.

S&P said the most disconcerting trend is how quickly the performance of these delinquent borrowers has deteriorated.

Only 6 months before the morons in Baltimore begin to catch on. Late to the housing bubble, late to realize its over. They still think DC people will move here en mass and commute. Bubble begets bubble.

At the same time, a spike in 10-year US bond yields by 0.65 percentage points over the last six weeks has drastically repriced the cost of fixed mortgages, knocking away a key prop for the US housing market.

I think inventory and other factors matter more to the housing market then a fixed mortgages going up $60 to $100 more a month. Most financially sound people don’t freak over $80 if they found the house they like and are buying with a fixed rate. The guys with arms might be getting freaked out.

Does any think the fast drop in prices are due to the fact we live in the information age. Think about the last drop in 91. Internet was just starting. You relied on what the neighborhood said or the realtor, banker, ect.... Everyone gets fed information non stop now, foreclosures, rates, stats by zip, ect.... I think this creates faster drops and recoveries. Could be wrong but things move much faster these days including the stock market. The stock market can bounce 100 up and down a day; this was not common years ago.

Well, well, well. Housingtracker changed its numbers. Inventory is not down 18.5 % YOY after all. Actually, inventory is up 5% YOY (up 40% in the last 6 months) and listing prices are down 10% YOY accordingly to Housingtracker’s latest revised numbers.

Just to recap, here is what one brilliant commenter said when I suggested that the 18.5% number may be incorrect:Anonymous said... I love it - the numbers look very very bad for caveat empetor, so he pretends they're not true. June 13, 2007 1:25 PM

Here is what Lance had to say:Interesting ... The facts don't support your conclusion so suddenly it must be that they " may not be telling the whole story, may be incorrect, or both.

And you think you are the one with any real idea of what they are doing?

David, you really need to end the misery of your followers. Like the good emperor of Japan did after getting hit by 2 atom bombs, you too need to concede you were very wrong and free your followers from further self-inflicted damage. They'll go down with the ship 'cause that's the kind of sheeple they are ...

As I said before, you and your ilk can send your apologies to foad@ohhailprofessorcaveatemptor.com

The new data coming out this week on the housing sector is only beginning to reveal the potential scope of a deflating bubble.Lance is begging David to end this blog because he can’t stand the deluge of evidence that he, and anyone else who bought real estate in the last three years, had better have a massive long-term commitment to their house if they ever want to see an economic return on investment.

I think the people who are going to be the most upset are the lemmings who purchased real estate between January and June 2007, listening to people like Lance, Lereah, and Yun and thinking that the market can’t get any worse.

Just watch and wait until the June, July, and August numbers come out. I have spoken to several real estate agents in the last couple of days, and they have all commented about how many homes have come on the market in the last week. In one agent’s words “they are coming on in droves.”

It is not like this was that hard to predict, as is shown by the following article published in 2005:

Do investors behave like lemmings?

Researchers from the Centre for Risk Research, University of Southampton, Professors Richard Dale and Johnnie Johnson and Dr Leilei Tang, have unearthed new evidence that investors in financial markets can behave irrationally. This key finding is a matter of great public concern affecting, as it does, pension funds, interest rates, economic stability and ultimately employment.In the aftermath of the Japanese financial bubble of 1990s and the more recent global dot.com boom and bust, economists have hotly debated the question of whether or not investors are rational. A great deal depends on the answer because if financial markets are subject to extreme irrational movements, stock prices and the cost of capital may be distorted and economic activity disrupted.The authors' research into the greatest stock market debacle of all time*, the South Sea Bubble of 1720, suggests that investors can indeed go mad. They use data that has never before been analysed to show that during the Bubble year the prices of successive issues of South Sea shares became so out of line with each other as to defy rational explanation. Careful statistical investigation also confirms that the prices of almost identical assets moved independently of each other as the bubble inflated - again demonstrating investor irrationality.'Investors appear to have been caught up in a whirlwind of speculation and gambling,' commented Professor Johnnie Johnson, 'their appetite for gain led to an explosion of excitement, with rational judgement being one of the first victims.'The major conclusion of this research - that investors completely lost their bearings in the heady atmosphere of 1720 - has direct relevance to our understanding of today's financial markets. It seems that the dot.com boom-bust and the South Sea Bubble, though separated by nearly 300 years, are directly linked. The message for policy-makers is that even well-managed economies can be derailed by surges of excessive investor optimism.According to Professor Dale, 'Governments must in extreme situations be prepared to intervene to prevent unbridled speculation in asset markets, ranging from shares to property, if economic stability is to be maintained.'Ends* 'Financial Markets Can Go Mad: Evidence from the South Sea Bubble', Economic History Review, May issue, 2005.

my husband and i are on the verge of signing a p&s for a cottage on Cape Cod. My brother, a carpenter in the area, pleaded with me on the phone for half an hour last night: "Don't sign anything!" He shouted. He wants me to significantly grind the seller on the sale price. Ideally he thinks we should wait, that we are stupid to buy a house that we know is going to decline in value the second we buy it.

But if we can steal it and lock in a 30-year fixed at a good rate, would it be so wrong? We're not speculators and we love the house.

With the impending crash, won't rates rise? Isn't it six of one, etc.?

I'm really enjoying watching the feeding frenzy that the slightest bit of news even remotely substantiating your fondest hopes and beliefs results in. It's like finally "we (the BHs) have heard something that might with the remotest chance prove us right"!

Face, it. It's false hope. If the "prices slashed in half" scenario you've been hoping for were actually happening, why is it that only those properties based in marginal speculative areas have gone done in median sales price? Why is it that all other properties have gone UP in median sales price? How do you explain that? Is someone lying to you because you don't like the facts?

You guys are really funny ... Scurrying around at the slightest bit of good news ... like the bottom feeders you've proven yourselves to be!

Enjoy getting "the leftovers" for your bargain prices. I'd bet you're the same folks who buy all that "sale/marked down" merchandise at the stores ... believing it ever really sold at the "compare to" price! LOL

Does any think the fast drop in prices are due to the fact we live in the information age. Think about the last drop in 91. Internet was just starting. You relied on what the neighborhood said or the realtor, banker, ect....Everyone gets fed information non stop now, foreclosures, rates, stats by zip, ect.... I think this creates faster drops and recoveries.

Mike... its been shown that today's faster communication is increasing the amplitude of market oscillations. Note: Not "yet proven" for real estate. But I certainly know its happening. Co-workers selling their homes don't listen to a Realtor (tm) saying the inventory "is a little high." They go out, look at competing homes on the net, and adjust their prices accordingly.

Its closer to a perfect market, except that there is no dampening of manias.

But if we can steal it and lock in a 30-year fixed at a good rate, would it be so wrong? We're not speculators and we love the house.

With the impending crash, won't rates rise? Isn't it six of one, etc.?

If you get a great deal... fine! Are you willing to accept you'll be 20% under water?

As to a wash, the #1 thing that is tightening is down payments. Why? Buyers are maxed out on their monthly payments. In OC California, its 49.8% of income goes to their mortgage/taxes/insurance! That's insane (old normal was 28%, 1st time buyers could go to 35%... until about 2002...).

My grandfather always advised, "Only buy a home when its tough to get a mortgage." Why did he give such advice? He has seen real estate booms and busts before. The busts always followed when its easy to get a mortgage.

"Does any think the fast drop in prices are due to the fact we live in the information age."

Yes, some people do but they are wrong.

"Think about the last drop in 91. Internet was just starting. You relied on what the neighborhood said or the realtor, banker, ect...."

We didn't have a housing bubble in 1991, just a much smaller housing boom. What we have today dwarfs everything that has come before it. Don't believe me? Look here.

"Everyone gets fed information non stop now, foreclosures, rates, stats by zip, ect.... I think this creates faster drops and recoveries. Could be wrong but things move much faster these days including the stock market."

The stock market fell much further and faster in 1987 and 1929 than it did in 2000-2002. Today they close the stock market if it falls too much in a day.

"The stock market can bounce 100 up and down a day; this was not common years ago."

A 100 point drop in the Dow is not what it used to be. Today a 100 point drop is a fall of only 0.7%. Twenty years ago a 100 point drop was about 4.0%. Since 0.7% drops are far more common than 4.0% drops, of course we have more 100 point drops today.

Have you noticed that we have more millionaires today than we used to? Well a million dollars isn't what it used to be either.

Your simplistic reasoning is just that, simplistic. Rising real estate prices are an indication of a rising and well performing local and national economy. Falling prices are the opposite. You, as an individual, are much more likely to be able to afford to buy a house in a rising and "doing well" economy, than you are in a "falling" economy. Thus affordability is not synonymous with falling prices. Quite the opposite, falling prices indicate increasing unaffordability. Despite what David J and the BHs think they've been cheering for, they've actually been cheering for less of a chance to buy their dream homes. As Va_Investor so rightfully pointed out many times "Why do BHs thing THEY, the renters, will be in a better position to buy in an economic recession than those with homes ... and capital?"

"my husband and i are on the verge of signing a p&s for a cottage on Cape Cod. My brother, a carpenter in the area, pleaded with me on the phone for half an hour last night: "Don't sign anything!" He shouted. He wants me to significantly grind the seller on the sale price. Ideally he thinks we should wait, that we are stupid to buy a house that we know is going to decline in value the second we buy it.

"But if we can steal it and lock in a 30-year fixed at a good rate, would it be so wrong? We're not speculators and we love the house."

You can't steal a house. Whatever great deal you think you're getting now, you'll probably be able to get a much better deal on another house in a few years.

Whether it's worth waiting depends in part on your age. If you're already retired, it may not be worth waiting several years because you would be losing a large percentage of the time available to enjoy the cottage. If you're young with many years left to enjoy a cottage, a little patience now would benefit you financially for the rest of your life.

"With the impending crash, won't rates rise? Isn't it six of one, etc.?"

Don't confuse cause and effect. Falling housing prices don't make interest rates go up. In the short run, higher interest rates have helped to push housing prices down, but in the long run prices will fall just because real estate is overvalued.

Buying a house is not just a financial decision. It is also an emotional one. You know the cottage is going to fall in value. You should also be aware that you may be able to buy a bigger cottage in a few years for the same amount of money. Do you love this one enough to buy it anyway? If so, you should buy now. If not, good things come to those who wait.

As long as you don't fool yourself into thinking the price doesn't matter or that you'll never be able to find a nice cottage again, you'll know whether buying this particular cottage is the right decision for you.

"What you're not getting is that the other poster is saying that if you are buying a home to live in, the fact it goes up or down a few or even many percentage points in value isn't important since when you go to move to a different house in the same area its price will have moved accordingly those same percentage points up or down."

He's getting at the fact that relative prices of housing matter, but he's missing two important points:1) It's not only housing that matters, it's also the performance of other assets that are not perfectly correlated with housing prices. Sure, when my house declines (or rises) in price that doesn't necessarily matter much in terms of my ability to consume housing if other house prices move in the same direction, but it does influence my overall ability to consume to the extent that other asset prices move in different directions. E.g. had you sold your house in 2005 and put everything in a stock market index fund, you'd be a genius even though you'd be in about the same position vis a vis other homes in your area.2) The problem with the overall "relative housing price changes balance out" argument is that it exhibits the Ponzi scheme features that the recent housing price run-up exhibited - people trade up to bigger homes based on the run-up in the price of their previous home. The problem is that this misses the importance of that often-overlooked group, the entry level buyer. At some point, these people get priced out of the market (see California.) When that happens, they pull back. And the whole Ponzi scheme unravels. Especially if these initial buyers think, hmmmm, prices are falling so I'll wait for a better deal later. Then the effect of "my home price only matters relative to your home price" starts to matter less, and the first point that I made starts to bite even more.

Lance said . . .As Va_Investor so rightfully pointed out many times "Why do BHs thing THEY, the renters, will be in a better position to buy in an economic recession than those with homes ... and capital?"

Man . . . I love lance's logic.

Black is white and white is black. Housing prices go up 15% YOY, my income doesn't go up 15% YOY but somehow it's more affordable . . . oh yeah b/c there are more jobs and a "better economy". .. ah okay riiiight. Now prices fall 10% YOY and its less affordable.

I see, I see... curses I should have bought last year b/c it would have been more affordable for me. Really lance. Okay considering that last year this time there were maybe 5 houses in my area in my price range (all dumps) . . . and now there are 20+ (some dumps, some not dumps) and the price range hasn't changed.

Oh but wait (gasp!!!), what if there is a recession and I lose my job. Well considering that I have enough saved up to live for about 18 months at my current burn rate, I'm perfectly fine. I can easily tap into that and be okay.

Now if I had bought last year, not only would I be underwater on my mortgage but I'd only have 4-6 months of savings. If I lose my job I've got 6 months before the pain threshold. But I can use the equity in my house!!! Oh goody I can go more into debt when I don't even have a job. Man . . . that's living.

Really lance . . . the only one who is simplistic is you. Get a life . . . stop trying to convince yourself and everyone else you are soo smart (all it does is smack of desperation). And well if you can't do that . . . we'll check up on you in 10 years when that IO amortizes. I'll have bought my house (20% down, 30 fixed, <28% debt-to-income), be making double payments (b/c I bought something which would allow me to) supporting my family on one income.

Oh wait . . . I forgot . . . I also be supporting you b/c you'll be on SS by then.

You mean like every single new and existing home sales report for the last 6 months? How about the weekly MRIS data updates and the monthly sales numbers? You mean those "slightest bits of news?"

If you think we are grasping at straws, PLEASE, post the news that says housing is fine and is going to go up sometime soon. We are all waiting...

"Face, it. It's false hope. If the "prices slashed in half" scenario you've been hoping for were actually happening, why is it that only those properties based in marginal speculative areas have gone done in median sales price?"

Nice try to weave the old strawman into things... few here are predicting a 50% price drop.

Oh yeah... and if "only those properties based in marginal speculative areas have gone down in median sales price"

"Your simplistic reasoning is just that, simplistic. Rising real estate prices are an indication of a rising and well performing local and national economy. Falling prices are the opposite."

I really do feel sorry for you lance. Let me just say that...

Yes, real estate TENDS to rise in strong economies and it TENDS to fall in weak ones, but that is not always the case. This most recent bubble formed in the wake of the dot-com implosion for instance...and the current bust began during a period where the overall economy was relatively strong. The real qustion now is whether the housing bust will impact the overall economy, not the other way around.

"You, as an individual, are much more likely to be able to afford to buy a house in a rising and "doing well" economy, than you are in a "falling" economy. Thus affordability is not synonymous with falling prices. Quite the opposite, falling prices indicate increasing unaffordability. "

This is of course nothing but your usual simplistic BS. Whether or not someone's earning potential is tied closely to the health of the overall economy is going to be determined by their job and numerous other factors.

This is DC you realise right? How many government employees are in this area? How many of them are even slightly concerned about a recession? For that matter... how many government contractors are around here? They may be scared to death of the next election and the possibility that the new administration will actually balance the budget... but they aren't scared of a recession. I could keep listing jobs all day that wouldn't even notice a recession but those two are the two biggest in this area.

Really lance, if you would try harder I would have more fun shooting down your BS. As it is there is little sport in it anymore.

"Despite what David J and the BHs think they've been cheering for, they've actually been cheering for less of a chance to buy their dream homes. As Va_Investor so rightfully pointed out many times "Why do BHs thing THEY, the renters, will be in a better position to buy in an economic recession than those with homes ... and capital?""

Heh, I don't know that I would be quoting VA_Investor dude... she has proven to be just as wrong as you are. The only thing she got right that you didn't was she cut her losses and ran when she realised she was wrong.

You on the other hand... continue to post here and are now something of a court jester.

Many of the "bubbleheads" on this board have substantial capital. We know the difference between saving and investing and simply running out and buying a mansion on credit. Sure, a "homeowner" with massive debt may appear to be financially successful, what you were shooting for I am sure, but in practice that individual may be in very bad shape.(just look at all of the articles on foreclosures moving into expensive neighborhoods)

I have been investing my money well over the last few years and when the time is right I will buy a house. You on the other hand... have sunk nearly three quarters of a million dollars, of someone else's money, into a depreciating asset.

"my husband and i are on the verge of signing a p&s for a cottage on Cape Cod. My brother, a carpenter in the area, pleaded with me on the phone for half an hour last night: "Don't sign anything!" He shouted. He wants me to significantly grind the seller on the sale price. Ideally he thinks we should wait, that we are stupid to buy a house that we know is going to decline in value the second we buy it.

"But if we can steal it and lock in a 30-year fixed at a good rate, would it be so wrong? We're not speculators and we love the house."

I say buy it if you can afford it. You love the house, you want to stay there, and it sounds like the mortgage is very manageable for you. Maybe it will drop in value over the next few, but would you care if it did, or would you just be too busy enjoying the house? If the latter, go ahead and buy it.

"Why do BHs thing THEY, the renters, will be in a better position to buy in an economic recession than those with homes ... and capital?"

I have lots more capital because I made the smart decision of not buying an overpriced condo or house in a marginal area in 2005.

In addition, I have lots more mobility, which means that shocks to the local economy do not affect me as much.

So my decision not to buy in 2005 has put me in a much better position to buy something I like today.

And it's really a self-contradiction to say that a house is not an investment and then to turn say that people should buy houses they don't like because that will enable them to afford a better house later.

If you're buying something you don't like in hopes that it will make you better off later, then you are investing, and not very wisely. And the people who bought houses they didn't like or bought in outlying areas they didn't like in 2005 are now hurting very badly.

In short, if you aren't treating housing as an investment, then you should only buy something you really like and can really afford. Otherwise, renting is smarter.

"You can't steal a house. Whatever great deal you think you're getting now, you'll probably be able to get a much better deal on another house in a few years."

This is exactly why you should never seek advice on this board. If you love the house, and can afford the house, then buy it. Don't wait "a few years" because some internet retard thinks he's an economist. And don't feed the trolls.

"If the "prices slashed in half" scenario you've been hoping for were actually happening, why is it that only those properties based in marginal speculative areas have gone done in median sales price? Why is it that all other properties have gone UP in median sales price? "

I believe it. I've been half-looking for a townhouse on Capitol Hill for a while, and there is definitely much less of interest in my price range than there was, say, a year ago. Weird thing to happen in a housing panic.

Anyway, Lance, you can be a bit overzealous, but I'm a supporter of yours. Most of these people just want to see something bad happen to somebody else. It's disgusting.

anon 6:06 said:"Anyway, Lance, you can be a bit overzealous, but I'm a supporter of yours. Most of these people just want to see something bad happen to somebody else. It's disgusting."

Thanks. Incidentally, I am overzealous because my sense of righteousness gets incensed when I see people wishing bad on others in the vain hope that they will somehow profit from the bad wished on those others.

with regards to . . . "But if we can steal it and lock in a 30-year fixed at a good rate, would it be so wrong? We're not speculators and we love the house."

MHO FWIW. It depends. If you've run the #s, saved up 20%, used a 30 year fixed. . . i.e. done a THOROUGH non-emotional cost analysis. I.e. calculate what happens if housing drops 10%, stays flat, goes up 2% vs. how much you save if you rent, how much comparable rent is. Can you rent a lot cheaper and live happily? Do you have kids . . . do you need the extra room in a house, yard for the kids. What does a comparable place to rent go for? Are you planning to stay there more than 3 years, preferably more than 5. What adv. dis. if you rent for cheap save up more and buy later, etc.

There is A LOT of work to do, and no one on this board can tell you yeah or nay.

I will say though I have learned in life there are very few . . . VERY FEW "last chance", "if you miss it you will regret it for your the rest of your life" things out there. Chances are very good, very good that if you run the #s and it doesn't make sense to buy, that you will be able to find a home that you love just as much or even better down the road. There is almost ALWAYS another chance another house, another opportunity. Sometimes not (very, very rarely) . . . but that's where doing your hw. and researching on your own and not taking realtwhore crap comes in. If you've done enough hw. (historical hw too, not just current market), you'll know. Biggest thing you can't let your emotions rule you, you have to control your emotions. Buying a house is emotional and it plays a big part . . . but if you are looking to not get screwed you have to control them.

2) Facts we currently know. a) We are in a housing decline. b) Historically housing cycles are 15-18 years, we had ~7 up years and maybe 1-2 down years. Historically speaking it prob. won't turn around for another 2-3 years. c) Interest rates are indeed low, prob. trending higher. d) How much it goes down (already down 10% from peak) and how high rates go is really a crapshoot. (I personally feel another 15-20% down [total of 25-30% from peak] and up to 8% rates, but who knows).

For me personally. I'm young (27), recently married, no kids, an engineer w/ a good job, I'll prob. move within 2 years, and I'm just now at the point where I have 20% down in my price range, and I could swing it without feeling dirt poor again. I rent for 50% of what I could buy, I save like a miser, and I don't spend much. I'm financial secure where I'm at and have no pressure to buy. There is NO reason whatsoever for my to buy right now, in about 1-2 years, I'll be more secure to buy and I'll prob. buy. So it just depends.

ps. If you do buy, lowball like crazy. on the MLS data for DC. sold prices avg. ~7% off list price. I'd work to get at least 10% off list price.

Capital One Financial Corp., a credit-card company that has been pushing into retail banking, announced a plan to cut about 2,000 jobs, or about 6% of its work force, as part of its effort to reduce expenses by $700 million in the next two years.

The McLean, Va., company said it will incur pretax charges of $300 million for the restructuring, including $90 million this quarter and a total of $200 million in 2007. It expects those charges to cut profit by 15 cents a share this quarter and by 33 cents a share for the year.

Capital One said about half of the job cuts have taken place. It expects to achieve additional savings by not filling open positions. Capital One expects to save about $400 million next year and an additional $300 million in 2009. It will have close to 30,000 employees after the reorganization.

In recent months, Capital One has said the mortgage industry would pressure its results this year, echoing the sentiment from other financial-services firms. It has expected to earn between $7 and $7.40 a share in 2007, compared with $7.62 a share in 2006. The company noted that the earnings forecast doesn't take into account the impact of the expected restructuring charges.

Through the acquisitions of North Fork Bancorp in December and Hibernia Corp. in 2005, Capital One has diversified its business beyond credit cards to banking.

The North Fork purchase gave Capital One a national mortgage-lending operation, GreenPoint Financial Corp., which specializes in offering "Alt-A" mortgages. Those loans are to people whose credit records are deemed good enough to forgo proof of their claimed income or assets. There are growing concerns among investors that the credit problems in the riskiest "subprime" mortgage market are spreading to the market for Alt-A loans.

Thanks, all, for your input on the Cape Cod cottage. We took our offer off the table last night.

The place has been on the market for about 120 days and has dropped in price twice. (Actually it has dropped 3 times if you count the seller's come-down during our negotiations with her.) Given the most recent reports, we suspect the cottage will stay on the market and the price will continue to drop. I don't want to be on the wrong side of that slide, no matter how long and deep or short and shallow it is.

Although we love the place, Cape Cod is lousy with great places and if we wait, we know we can get at least the deal we have now, and the more likely scenario is that we'll get an even better deal further down the road.

We don't NEED to buy a place now, so we're going to sit back and watch the nationwide downturn. Instead of weathering an unknown percentage of loss that is automatically built in to any house at this time, we'll continue to collect interest on our money.

Keith said: "I say buy it if you can afford it. You love the house, you want to stay there, and it sounds like the mortgage is very manageable for you. Maybe it will drop in value over the next few, but would you care if it did, or would you just be too busy enjoying the house?"

What you say is true: we love it and the mtg. payments are modest and we do plan to hold the place for years. But we would be very bummed to buy a lead balloon and watch it decline as we would see it as having literally given money away. We can always pounce if/when we see housing begin to rebound. it's not like prices shoot up overnight. In the meantime, we can rent a great cottage whenever we want. (We can rent a much better place than we could ever afford!)

James said: "Whatever great deal you think you're getting now, you'll probably be able to get a much better deal on another house in a few years.

If you're young with many years left to enjoy a cottage, a little patience now would benefit you financially for the rest of your life.

You know the cottage is going to fall in value. You should also be aware that you may be able to buy a bigger cottage in a few years for the same amount of money. Do you love this one enough to buy it anyway? If so, you should buy now. If not, good things come to those who wait.

As long as you don't fool yourself into thinking the price doesn't matter or that you'll never be able to find a nice cottage again, you'll know whether buying this particular cottage is the right decision for you."

James is right on. (And thanks for putting the 100-point Dow drop into perspective.) We love the place, but it's not the first one we fell in love with and it won't be the last. Or maybe it will be the last, once we grab it February of '08 for a song. We're not retired, but we're not really that young either, so time is a factor. But we've waited several years; I guess we can wait another 6-12 months.

We were deluding ourselves a bit by thinking the exact price didn't matter in the long run and that this place was extraordinary. Wow, were we being silly.

"This is exactly why you should never seek advice on this board. If you love the house, and can afford the house, then buy it. Don't wait "a few years" because some internet retard thinks he's an economist. And don't feed the trolls."

You sound like the retard who tried to bet me $10,000 in a recent post. The price somebody pays for a house does matter, no matter how much you try to pretend it doesn't. If she can save money on a cottage, she can have more money to enjoy other things in life. I didn't tell her not to buy the cottage, but it sounds like her brother has a good feel for the local housing market. As long as she is honest with herself about the price she is paying and how much she loves the house, then she can weigh the two and decide for herself whether she still wants to buy the house.

We are in a bubble but two points. Everyone is using graphs to show how much housing went up and making claims of a 50% drop. Couple key points that many people forget. 1: Part of the sky rocketing house prices was due to the fact that housing was actually undervalued and had catching up to do. For example in 99 brand new burb homes where going under 200k. House payments where in the low 1000s. If the average family was making lets say 60 to 80k there was plenty of room to grow. You will never see those prices again. If you where capable of buying in 99 enjoy the view of the boat sailing away. 2: The same houses are now going anywhere from 450k to 550k. If you cut this in half to 225k to 275k, do the math it isn’t going to happen. It would be chaos, why would you want to buy then! If you add 6% percent a year you are looking at high 300s. So like I said an additional 10% drop would make housing affordable to many people. I really doubt you will see more than another 15% drop in a worst case scenario for this area. If you find a house about 10% undervalued (Interest rates are still considered low), you probably don’t have too much to worry about.

Some interesting points a good friend told me who is a lender. One it is unbelievable how many people cashed out of their house. Society here in America lacks responsibility, only reason why I want to scream when I hear about government bailouts.He also said some properties are for sale so long because of the following example.

Bob owes 500k for the house. Buyer offers 480k, Bob accepts but the title company blocks the sale because bob doesn’t have 20k to pay. Bob is a dump a$% who cashed out of his house. Much stricter lending standards also killed lots of deals for him also.

So I asked, well it looks like we are heading for a big crash. Answer not really he sees a 20% swing, some properties going down 17% some going up about 3%. Reasons: location, $$ in the area, too many jobs with more coming.

I wish there was a accurate way to pull up avarage short term dept (Credit cards, cars, ect..) by zip. This is a major factor where housing is headed, from what I remeber the average American has 6k in credit card debt. Anyone know if this is true?

"Most of these people just want to see something bad happen to somebody else. It's disgusting."

No, my friend, the thing that is disgusting is people like you who, through their greed, have managed to f*ck over a whole generation of people who simply want to buy a reasonably sized home at a, heretofore, reasonable and historically fair price. Eat a side of d*ck with that falling home price.

"No, my friend, the thing that is disgusting is people like you who, through their greed, have managed to f*ck over a whole generation of people who simply want to buy a reasonably sized home at a, heretofore, reasonable and historically fair price. Eat a side of d*ck with that falling home price."

"No, my friend, the thing that is disgusting is people like you who, through their greed, have managed to f*ck over a whole generation of people who simply want to buy a reasonably sized home at a, heretofore, reasonable and historically fair price. Eat a side of d*ck with that falling home price. "

Gee, I thought you guys LOVE renting? Which is it? LOL. I'm going to go spend some more of my money now. I've got a sh*tload of it.

Newsflash: Per realtor.com, the Cape Cod Cottage we bailed on yesterday suddenly dropped its asking price $10K!! (which is just shy of a 5 percent drop.) That brings the total number of price changes to 4 since the place came on the market.

I realize that doesn't mean much, considering the seller's asking price both arbitrary and high. But still, it's an encouraging sign and a bit of vindication of our decision to bail (it was hard to say goodbye.)

A $2500 house payment is $30,000 a year. I think for a good chunk of the population here that is not %40 to 50% of their income. Dont get me wrong I think we are in a bubble. Im just arguing you will not see no where near a 50% drop.

Robert Said "Why would I pay $225K when I could pay $450K? Thanks for putting that into perspective."

You are taking the statement out of perspective. If housing dropped that much, their will be a significant price for the drop. Also for housing to drop that much there would be some some serious outside forces that caused it. That is why I stated "Why would you WANT to buy then"

Anon said:""No, my friend, the thing that is disgusting is people like you who, through their greed, have managed to f*ck over a whole generation of people who simply want to buy a reasonably sized home at a, heretofore, reasonable and historically fair price. Eat a side of d*ck with that falling home price.""

Wow ... another clueless Bubblehead! I guess he doesn't know that home purchases are far more affordable today than they were a generation ago.

He just looks at nominal sales prices. He doesn't have a clue as to the concepts of relative affordability or what double-digit interest rates do to a monthly mortgage. I think it was Keith who cited numbers validating that home purchases back around 1980 took a bigger chunk out of paychecks than they do today.

I've been watching a couple of local areas (Charles and Prince Georges Counties) very closely since late last fall. Prices were steady right up until about the end of 06.

Then, in January I started getting lots of email from communities I'd inquired about offering closing help. These offers quickly went from a 2-3 up to 5-10K. By April, prices started falling. Now, in just the last month, 3 of the properties I'm watching have dropped by 10,10 and 15K respectively while offering the same closing help.

Also, I was pre-approved by my credit union for 275K@7% in 9/06. Now in 6/07 they're offering 280K@7.75% even though my already good credit (720) has gotten better (750) and my salary has gone up by 11K in that time.

As more people start to bail on their high monthly mortgage, you'll see prices fall more and more.

It takes about one year 1\2 from the first decline you notice to all out flooding of the market.

You will see massive fire sales, topped with a huge increases in forcloseures and short sales.

Take a piece of real estate that was selling for 400K mid 06. Today that same real estate is listing for 300K and selling for 280K.

I'd say you have another year before your area will start falling apart, price wise. I toggle between the local multi listing service and zillow, it's fun to watch. It's awesome to see a house that was sold in 05' for 300K get sold for 180K now, via bank forclosure.

I could buy now, but I want to see how low they go. I guess thats the big question. Sounds like your area is getting ripe.

"Also, I was pre-approved by my credit union for 275K@7% in 9/06. Now in 6/07 they're offering 280K@7.75% even though my already good credit (720) has gotten better (750) and my salary has gone up by 11K in that time."

WOW who ever this is find another lender because that rate is sh%$ty. With a good credit score you should find something in the mid 6% EASY.

Mike said... “If housing dropped that much, their will be a significant price for the drop. Also for housing to drop that much there would be some serious outside forces that caused it.”

What significant price? What outside force? Yes, if we saw another “great depression”, things would be bad. But “bad” is relative. I’m liquid, diverse, and financially sound. Am I wealthy? By no means, just living within my means. So, if a house does come along that I like at $.50 on the dollar, no worries. I could easily purchase, and feel a relatively small hit financially.

Now, take this “significant price” and “outside force” and apply it to someone that bought an overvalued, depreciating home, with an I/O ARM and used it as an ATM.

Again please reiterate “outside force”? Would it be a rise in foreclosures? Tightened lending standards? A trillion dollars in ARM re-sets? A glut of inventory? I too am not calling for 50% price drops. But I don’t think we’ve seen the bottom.

Current inventory is about 10% less than a year ago in northern VA area. The trending has been like this for quite a few month. The market has already reached the bottom last summer or a little late depending on the zip codes, the prices remain flat since then. However, there is a long way to go for market to recover, and it may take a few more years to get positive inflation-adjusted home appreciation. Check this link out for the inventory numbers.